US July inflation: Headline a bit under, core a bit over expectations – UOB Group

Headline CPI was restrained by muted food inflation, weaker energy prices, but core CPI inflation picked up to the fastest pace year-to-date, driven by reaccelerating services costs but held back partly by subdued goods inflation, UOB Group's Senior Economist Alvin Liew notes.

US headline and core inflation come in slightly mixed

"US headline CPI came in slightly below expectations at 0.2% m/m, 2.7% y/y (versus Bloomberg est: 0.2% m/m, 2.8% y/y), while core CPI was higher at 0.3% m/m, 3.1% y/y (versus Bloomberg est: 0.3% m/m, 3.0% y/y), the highest since February."

"Inflation was mainly driven by services and shelter costs, while tariff-related goods showed moderate price increases, suggesting a muted pass-through effect for now. We keep our 2025 US headline CPI inflation forecast at 3.6% and our core CPI inflation projection is also unchanged at 3.8% but risks of downward revision exist due to the extended China tariff pause and potential weakening in consumer demand and labor market. We continue to assume the tariff-driven inflation to be a one-time price shock before coming off sometime next year."

"Markets cheered the Jul inflation prints, and reinforced expectations for the Fed to resume easing in September. We continue to hold our view of three 25-bps cuts in 2025, to be executed at the Sep, Oct and December FOMC meetings. This will bring the FFTR to 3.75% (upper bound) by end-2025."